CSRHub Blog Research on ESG metrics and comments on sustainability best practice

Do some states attract more progressive companies while others receive investment from companies who are thought to be less socially progressive? If so, why might this occur?

A recent article in Site Selection Magazine used the CSRHub database as part of determining which of 50 US states and 132 non-US countries were most attractive for a new site from a sustainability perspective. This article presents analysis which provides deeper understanding of the corporate social responsibility aspect. Our goal is to make it easier for companies to use sustainability as a site selection criteria and localities to screen siting companies for sustainability, thereby improving their desirability.

CSRHub’s Contribution to the Study

The CSRHub data set contains estimates of the perceived corporate social responsibility (CSR) performance of more than 16,000 entities. It includes data on both public and private companies and on government entities and not for profits. CSRHub collects information for its big data engine from more than 469 sources and its data set includes companies from 133 countries. For more information on how CSRHub ratings are generated, please see the CSRHub site.

Because many Site Magazine entries were from subsidiaries, a total of 3,073 CSRHub companies connected to at least one site decision entry on the Site Selection list, and 2,217 of these matched companies had full CSRHub scores. These companies were responsible for 5,549 of the site entries—About 55% of these site entries (3,052) were for U.S. sites and the other 45% were for sites in 106 other countries.

Using only scores from fully rated companies, CSRHub calculated two numbers for each US state and for each foreign country:

The average perceived CSR performance for the entities headquartered in that location. For example, CSRHub found that the 63 fully rated companies in Minnesota had an average percentile rank of 54.8%. Similarly, the 34 companies in Finland have 88% average ranks. (CSRHub tracks a total of 137 companies in Minnesota and 72 companies in Finland.

The average perceived CSR performance of the entities who placed sites in a location. For example, entities with an average 58.5% rank placed 93 sites in Georgia. (Another 23 sites were placed by entities who were headquartered in Georgia.) Entities with an average 70.7% rank placed 75 sites in Brazil (Another 5 sites were placed in Brazil by Brazilian companies.)

The difference between these numbers shows whether companies selecting sites in a given location are perceived to be more or less sustainable than that location’s current rating. The following table shows the relevant data on both scores for the 39 US states that had at least 5 sites selected by companies outside of the state and at least five companies tracked by CSRHub. The table is sorted in order by the difference between the two scores.

The preponderance of positive scores is probably due to several factors:

Many of the new entrants into these US states came from European companies. European companies have consistently higher sustainability ratings than US companies.

Idaho and South Dakota companies already have relatively high scores. They may be seeing lower scores for those siting in their state because they are attracting companies primarily interested in extracting their resources.

Connecticut has positioned itself as a business-friendly state and this may have encouraged some lower-ranked companies to enter.

Arkansas, Delaware, and Mississippi all have lower starting scores and are likely to see benefits from encouraging positive companies join their communities.

The table below shows the same information for non-US countries. Note that we have narrowed the list to those countries with at least five sites from companies with headquarters outside the country and that have at least five entities that are fully rated by CSRHub.

The foreign table shows much bigger differences in the baseline performance of the companies in each country. The three countries with the biggest negative differential are those who also have the highest average scores for their existing companies. It is probably difficult for these countries to find many companies outside of their jurisdictions who can match this level of performance.

The three countries with the biggest positive score difference with new site contributors are:

Greece—which has very low scores from its current companies and who is getting huge support and attention from other higher-scoring parts of the EU.

Saudi Arabia—which is trying to build a base of sustainable, non-energy-reliant industries.

Egypt—which has such weak performance within its existing base of companies that outside companies must generally seem quite attractive.

We hope that studies such as the one done by Site Selection Magazine will encourage companies to include sustainability factors in their site research strategies. Our data suggests that the localities who are accepting new sites will generally see candidate companies who are at least as socially positive as the companies who are already in their communities. However, it may make sense for localities to screen each candidate carefully and seek to improve their reputation for being a socially positive and sustainable place to put a new site.

Appendix 1: How CSRHub Generates a Score

Appendix 2:

Appendix 3:

Bahar Gidwani is CEO and Co-founder of CSRHub. He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. He plays bridge, races sailboats, and is based in New York City.

CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information. It covers over 16,000 companies from 135 industries in 132 countries. By aggregating and normalizing the information from 461 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.

Sustainability professionals are chronically over-worked, and the idea of reviewing another sustainability report - even one from a leading global brand - often gets filed under "good idea" rather than "essential reading".

That's almost certainly the reasoning behind Heineken's decision to produce a rap video that shares quantitative information on their CSR performance.

That's right - a rap video! And at CSRHub, we applaud any effort that makes CSR performance data easier for everyone to understand - its at the core of what we do, too.

While we're not familiar with this particular rapper (Blaxstar) we do appreciate a funky groove - even more so when the lyrics speak to honest effort that's been applied to solving some of the world's biggest problems.

What's next - a Broadway musical on climate change? We're looking at you Lin-Manuel Miranda...

And more importantly - what do you think of their strategy? Is this a good idea?

Jeff Hayes is part of the Direct Sales and Business Development team for CSRHub. Jeff defines Corporate Sustainability as "maximizing profitability - but not at the expense of the environment, people, or their communities." Before joining CSRHub, Jeff was a consultant, offering middle-market organizations a fast-track to sustainable business best practices. During that time he was also a CSRHub subscriber, and he brings his own user-experience focus to improving our tools. In 2006 he co-founded an inclusive network of entrepreneurs and young professionals called Green Business Networking, simultaneously running an exclusive, sustainability-focused network of service professionals. Jeff attended Berklee College of Music, where he studied Film Scoring. Returning to California he entered the emerging world of computer graphics, and his early career was spent developing visual effects for film, television, and video games for Walt Disney Imagineering and Activision. Jeff grew up traveling around the world, surfing exotic locales, and since settling in Seattle he's shifted his passion for ocean sports to learning to kite board in Puget Sound.

CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information. It covers over 16,000+ companies from 135 industries in 133 countries. By aggregating and normalizing the information from 455 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.

New York, NY, USA and Zurich, Switzerland – May 13, 2015 – CSRHub andRepRisk are pleased to announce the findings of their joint research report on the link between perceived CSR performance and ESG-related reputational risk exposure.

CSRHub, the world’s largest CSR and sustainability ratings and information database, and RepRisk, the leading data provider of dynamic environmental, social and governance (ESG) risk analysis and metrics, combined several years of data on over 4,000 companies from the around the world to conduct the study.

The findings show that correlations do exist between perceived CSR performance and reputational risk. It appears that companies with the most sources of sustainability ratings also have the highest risk exposure, regardless of company revenue or market capitalization, and that sustainability rating sources can play a role in discovering and communicating corporate risk events.

In addition, the data indicates that companies that have strong CSR programs as measured by CSRHub, in the areas of Human Rights and Supply Chain, Leadership Ethics, and Resource Management, seem to have lower risk exposure, whereas those companies who have strong programs in Community Development and Philanthropy, Environment Policy and Reporting, or Compensation and Benefits seem to have higher risk exposure.

“Taken together, our findings suggest that corporate risk managers should seek to become involved in their company’s corporate responsibility and sustainability programs,” said Bahar Gidwani, CEO and Co-Founder of CSRHub.

Alexandra Mihailescu Cichon, Head of Business Development at RepRisk, said “This study was a step forward in demonstrating the link between sustainability and operating results, and helps support the idea that sustainability programs help mitigate corporate risk.”

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 14,400+ companies from 135 industries in 127 countries based on 12 indicators of employee, environment, community and governance performance and flags many special issues.

CSRHub’s system aggregates and normalizes 64 million data points from over 380+ data sources. The data comes from nine socially responsible investing research firms, well-known indexes, publications, “best of” or “worst of” lists, NGOs, crowd sources and government agencies. By aggregating and normalizing the information from these sources, CSRHub has created a broad, consistent rating system and a searchable database that links each rating point back to its source.

For more information about the usage and benefits of CSRHub, please visit: www.csrhub.com.

About RepRisk:

RepRisk is a leading business intelligence provider specializing in dynamic environmental, social and governance (ESG) risk analytics and metrics.

Daily, RepRisk systematically screens big data from a broad range of open intelligence sources in 15 languages in order to identify, filter, analyze and quantify ESG risks (such as environmental degradation, human rights abuses and corruption) related to companies, projects, sectors and countries. This external perspective provides valuable insight on whether a company’s policies, processes and commitments are consistently translating into performance.

Since 2006, RepRisk has built and continues to grow the most comprehensive ESG risk database that serves as a due diligence tool and early warning system in risk management, compliance, investment management, corporate benchmarking and supplier risk. The database currently includes risk profiles for over 52,000 public and private companies and 12,000 projects as well as for every sector and country in the world.

I’m writing today to let you know I’m going on sabbatical for six weeks to work on a longer piece.

For the last two years, this blog has been my curriculum in environmental activism. It’s been my practice, my meditation, my energy source. It’s how I came to feel a part of this strange place I moved to in 2009, this most gorgeous Pacific Northwest.

Most of all, it has been a fabulous opportunity to commune with you courtesy of CSRHub’s wonderful team – Cynthia Figge, Ruth Edwards and Bahar Gidwani. Those individuals contribute mightily to keeping companies doing the right thing by measuring and reporting their CSR performance. I am proud to be associated with them.

I’ll be back in September, refreshed and rejuvenated, and hopefully with a manuscript well on its way.

Thank you and so long for now,

Carol Pierson Holding

Carol Pierson Holding writes on environmental issues and social responsibility for policy and news publications, including the Carnegie Council's Policy Innovations, Harvard Business Review, San Francisco Chronicle, India Time, The Huffington Post and many other web sites. Her articles on corporate social responsibility can be found on CSRHub.com, a website that provides sustainability ratings data on 7,400 companies worldwide. Carol holds degrees from Smith College and Harvard University.

In the previous posts in this series, we have described the relationship between Brand Finance’s Brand Strength Index and CSRHub’s sustainability rating. The overall correlation between these large sets of data is strong—and it has been growing stronger. We will now look at how each of the twelve individual components in CSRHub’s metric system relate to brand strength.

CSRHub ingests sustainability information from 230 sources that each have their own way of measuring and rating corporate social performance. In order to make sense of these different measures (we have more than 9,000 different indicators in our system), CSRHub has mapped each indicator from each source into one of twelve “subcategories.” (You can see a description of this schema here.) These subcategories are then grouped into four categories (with three subcategories in each category).

The ratings for each subcategory are forced into a curve that has a central tendency (around 50 on a scale from 0 = low to 100 = high). There is a natural tendency for subcategory scores to be correlated (i.e., a company who is good on one measure of sustainability tends to be better on all of the others), the correlation between subcategories is generally between 0.25 and 0.5 for subcategories that are in the same category (e.g., Energy & Climate Change vs Resource Management) and between 0.1 and 0.25 for subcategories that are in different categories (e.g., Product and Board).

To understand which subcategories may be more important for brand strength, we performed a multivariate analysis between the twelve CSRHub subcategory scores and the Brand Finance Brand Strength Index. The results of the regression mentioned show that eleven of the twelve CSRHub’s subcategories have meaningful individual correlation statistics. Only our Human Rights & Supply Chain measure seems to have no correlation with brand value.

Correlation Between BSI and Each of Twelve CSR Factors

We performed a similar analysis on our 2011 data set—using 921 sets of data. Both the coefficients for the multivariate regression and the relative strengths of the correlations between each subcategory and brand strength were similar. The extent of correlation was less at all levels for the 2011 data.

We would expect that product sustainability, leadership ethics, and a company’s environment policy and reporting would be tied to brand strength. These are areas that companies actively invest in and communicate about. The weaker ties to board performance, transparency and reporting, energy and climate change, and resource management may be due to the fact that consumers have few means to connect these areas with the products they buy. The most surprising results are the weak relationship between brand and human rights and supply chain issues, the modest effect of community development and philanthropy, and that how companies treat their employees is important to their brand strength.

We have some thoughts to offer on these last three points:

Human rights and supply chain. Our rating in this area goes up when a company is more transparent about its behavior. It also goes up when a company has few “incidents” with its supply chain and when it takes steps to enforce socially positive policies (such as diversity, fair pay, and workplace safety) on its suppliers. We suspect that consumers may not understand the complexity of the issues companies face in this area. They may distrust company communications in this area or dismiss them as “window dressing.” More communication and transparency may indicate that a company has problems in the area, without making it clear that the company has solved some or all of them.

Community development and philanthropy. Many companies assume their investments in these areas will support their brands. However, it is hard for a company to brag about its good deeds without appearing to be “paying for love.” Further, an investment in one community may not pay off with brand benefits in other/all communities.

Employee treatment.Many studies have shown that consumer brand impressions are heavily influence by the behavior of a company’s employees. Polite, knowledgeable service people; employees who actively serve in community organizations; and personal contact between employees and customers can directly affect how a brand is perceived.

Conclusion and Next Steps

If corporate social responsibility performance drives brand strength, companies have yet another reason to care about their social performance. We do not advocate cutting expenditures on human rights and supply chain improvements. We believe that consumer awareness in this area will grow rapidly—spurred partly by news coverage of events such as the recent collapse of a factory in Bangladesh. However, we hope that our results show companies that investing in better treatment of their employees may also increase the strength of their brands. Our results also suggest that brand managers may expect to see broad benefits on their brand strength from promoting and leveraging their company’s good social responsibility performance.

We plan to repeat our study using Brand Finance’s next annual BSI data set (due to be released in March 2014). We are also reaching out to other groups who have brand data and digging into the indicators and data we have from our 230 other data sources. We intend to study the performance of “outliers”—companies whose brand and sustainability performance run counter to the general trend we have described. We invite any company or group who is interested in this area to contact us regarding this work. We will need detailed information and input from the management of both brand-driven and non-brand driven companies, if we want to understand best practice in this area.

Bahar Gidwani is CEO and Co-founder of CSRHub. He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar is a member of the SASB Advisory Board. He plays bridge, races sailboats, and is based in New York City.

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 7,300+ companies from 135 industries in 93 countries. By aggregating and normalizing the information from 230 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.